Debentures And Debenture Trustee Regulation Under The Companies Act, 2013

Khurana and Khurana


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Vinita Nair and Abhirup Ghosh, Corporate Bonds and Debentures (Taxmann, January 2021)
India Corporate/Commercial Law
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To understand what are debentures, it is pertinent to go back to the roots when a company is incorporated. A company just soon after its incorporation needs capital or equity for its seamless working. There are different ways by which it can raise funds.1 Apparently the two main forms of capital generation are the issuance of stocks in the form of shares and the other is through loans. Shares are issued to the shareholders in exchange of percentage of ownership whereas loans are given against interest rates for a specified period. This loan is in the form of a debt and the money generated through loans is called debt capital.

Debentures- are a form of financial instrument that are issued by a company for generation of debt capital. It is a written agreement that validates the loan along with the principal and interest rates to be paid at a pre mentioned time.2

Section 2(30) of the Companies Act, 20133 defines debenture as "stock, bonds, or any other instrument of a company demonstrating a debt, whether creating a charge on the company's assets. A debenture holder is a person or organization who loans money to the corporation. Debenture holders get interest at certain periods and rates."


The aim of this research paper is to understand the concept of Debentures and Debenture Trustee Regulation under the Companies Act, 2013. The research objectives are as follows:

  1. To analyse and explore the legal governing framework of Debentures in a Company formed under the
  2. Assess and thoroughly examine the functions and responsibilities of Debenture Trustees with relevant provisions of the Companies Act,


The major questions that arise in this research paper can be best formulated into the following two questions. The research questions are as:

  1. How does the legal framework for debentures in corporations, as stated in the Companies Act of 2013, assist to the efficient issuing and administration of debentures?
  2. What are the exact tasks and responsibilities of Debenture Trustees under the Companies Act, 2013, and how do they protect debenture holders' rights and interests?


Article Review 1: Instruments of finance: Debentures4

Debentures are pivotal in a company for it to exist and operate without hindrances. Scholars emphasize the importance as they are the main tools of generating monetary capital through debt loans. They are in different forms such as secured and unsecure, convertible, unconvertible or partially re convertible. It gives companies flexibility to choose the mode of capital generation. Debentures can be hence said as equivalent to financial instruments in a company and play a central role in the tractions.

Article Review 2: The Role of Debenture Trustees and Regulations5

The article highlights who are debenture trustees and their role. It goes on to say that after the company generates wealth through debt capital, the company is supposed to appoint a trustee for safeguarding the rights and interests of the debenture holders as according to Section 71(5) of the Companies Act 2013.

Article Review 3: Potential Debenture Challenges

While rules and regulations have increased investor trust, many issues persist. Possible conflicts between interests amongst debenture trustees and issuers pose governance issues. The study emphasizes the need of having strong processes in place to address these conflicts and ensure that debenture trustees can execute their fiduciary obligations without bias.

Article Review 4: Dynamics and the Future

The Companies Act of 2013 has altered the structure of the debenture market, resulting in improved due diligence and risk management techniques. How these reforms have drew a wider spectrum of buyers to the debt market. According to the author, this movement has been influenced by the expanding role of debenture trustees in maintaining compliance and investor protection.

Book Review 1: Corporate bonds and debentures by Vinita Nair and Abhirup Ghosh6

The writers dive into the complexities of debenture issuing, trustee obligations, and the implications of the Companies Act 2013. Their thoughts are a great resource for understanding the changing environment of debentures in India's business sector.

Book Review 2: Debt securities and interest rates derivates by AV Rajwade7

The book went into great length about debentures as important components of debt finance. The book dives into several forms of debentures, their characteristics, and the function of debenture trustees in protecting investors. The author presents a practical viewpoint on negotiating the regulatory complexity surrounding debentures, with a focus on the Companies Act.


After going through the above introduction, literature review and aligning the research paper with the research objectives, we move further ahead and craft out a detailed analysis about Debentures and Debenture Trustees Regulations under the Companies Act, 2013.

Governing framework of Debentures

Debentures and the laws governing them are under the Companies Act, 2013 which form an important part of India's business fiscal environment. The Act includes detailed provisions covering debenture issuance, administration, and protection. This Analysis dives into the governing framework for the issue of debentures; who can become a debenture trustee; the functions thereof; the relevant provisions under the Companies Act, 2013. 8

When a corporation decides to issue debentures, the procedure usually begins in the formal setting of a Board Meeting, where the company's board exercises its power to approve the issuing of these financial instruments. This critical decision-making moment adheres to the requirements outlined in Section 179(3) of the Companies Act of 2013, ensuring that such financial measures are approved at the highest administrative level within the firm.

Moving ahead, the procedural features of issuing debentures are painstakingly governed by the detailed procedures laid out in Section 71 of the Companies Act of 2013. This section serves as a framework, outlining the actions and requirements that a firm must follow while issuing debentures. It covers the finer aspects of the entire process, such as the documentation, disclosures, and legal requirements required for a transparent and authorized issuance.

According to Section 2(81) of the Companies Act of 2013, debentures are classified as "Securities." This classification stresses debentures' financial nature and places them within the regulatory scope of securities, subject to the relevant legal rules and protections.

Furthermore, the complexities of issuing debentures are consistent with the larger framework of securities issuance, as described in Section 23 of the Companies Act of 2013. This section explains the processes that both public and private companies must follow when issuing securities. Companies that reference Section 23 guarantee that they follow defined standards, preserving uniformity and compliance throughout the spectrum of firms involved in financial instrument issuing. As a result, these measures help to maintain the general stability and integrity of financial markets by defining clear criteria for corporations seeking to obtain money through debentures.

The custodial oversight by Debenture Trustees

The numerous functions of Debenture Trustees are inseparably linked to a strong legal framework, which is primarily defined in the Companies Act of 2013 and its accompanying regulations. This legal framework oversees several aspects of Debenture Trusteeship, including the qualifying conditions for businesses to take on this critical position. Furthermore, businesses wanting to operate as Debenture Trustees must go through a rigorous registration process with the Securities and Exchange Board of India (SEBI). The strict adherence to these legal rules is critical, guaranteeing that only competent entities, such as commercially engaged scheduled banks, state financial institutions, insurance firms, or corporate entities, are entrusted with Debenture Trustee duties.

Within this regulatory framework, Debenture Trustees serve as trust agreement custodians, protecting debenture holders' interests and rights. The trust deed, a legal instrument describing the responsibilities and rights of both the issuing firm and debenture holders, is the foundation of this custodial relationship. Debenture trustees are critical in ensuring that the trust deed's provisions are followed, so preserving the integrity and security of the debenture investments.

Debenture holder's rights and interests

Debenture holders, who are significant stakeholders in a company's financial architecture, benefit from a range of rights and safeguards that are scrupulously protected by both the statutory framework and Debenture Trustees' custodial monitoring. First and foremost, these inherent rights include access to periodic disclosures that provide insight into the issuing corporate entity's financial health and performance. This openness empowers debenture holders, creating an atmosphere that encourages informed decision-making and confidence.

In alongside scholarly publications, books such as Nair and Ghosh's "Corporate bonds and debentures" and Rajwade's "Debt securities and interest rate derivatives" give comprehensive understanding into debenture issuance, trustee responsibilities, and the consequences of the Companies Act, 2013. These materials help to provide a complete overview of the changing debenture environment in India's commercial sector.

Furthermore, the legal framework protects debenture holders' financial interests by requiring Debenture Trustees to handle collateral assets stringently. The pledged assets must remain sufficient to cover interest and principal payment obligations, which is a basic entitlement of debenture holders. Furthermore, Debenture Trustees monitor encumbrances on these collateral assets closely, eliminating unnecessary risks and strengthening the entire risk management approach.

In essence, the dynamic interplay between the regulatory framework and Debenture Trustees' rigorous custodial function helps to creating an environment that prioritizes and protects debenture holders' rights and interests in the complex terrain of financial markets.


The examination of debentures and debenture trustee regulation under the Companies Act of 2013, reveals an extensive and sophisticated structure that plays an important role in India's corporate financial environment. Debentures, as fundamental tools for generating equity through borrowing, provide corporations with versatility in their financing plans. They come in a variety of shapes and sizes to meet varied financial demands and tastes. As required by Section 71(5) of the Companies Act of 20139, debenture trustees play an important role in protecting the entitlements and financial interests of debenture holders.10

While the limitations have strengthened investor trust and market stability, issues like as conflicting interests involving debenture trustees and issuers continue to exist. To address these difficulties, strong governance systems are required to ensure the impartial execution of fiduciary obligations.

The Companies Act of 2013 has changed the character of the debt market. The expanded role of debenture trustees has resulted in greater due diligence and risk management processes, as well as attracting a wider range of investors to the debt market. This shift emphasizes the importance of debenture trustee regulations in ensuring compliance, security for investors, and the integrity of the market.11

In simple terms, the study emphasizes the critical role of debentures as capital-generation instruments, the significance of debenture trustee regulations in safeguarding the interests of investors, and the continuing development of the debenture marketplace as a result of changes in regulation and the evolving function of debenture trustees. As the business environment evolves, a full grasp of these policies and their ramifications becomes increasingly important for sustaining investor trust and the smooth operation of the financial sector as a whole.


1 Bose A, 'Debt Capital: Debenture Trust Deed and Trustees' (iPleaders, 13 February 2022) trustees/#:~:text=As%20per%20Section%2071(5,the%20interests%20of%20debenture%20holders. accessed 11 August 2023

2 'Debentures' (1888) 5 Cape Law Journal 129> accessed 10 August 2023

3 Companies Act 2013 (India) s 2(30)

4 Priyam Bhandari, 'Laws Governing Debentures in India' (2018) 5 Supremo Amicus 193 accessed 11 august 2023

5 L. Keith Parsons, 'A Review of Interpretive Opinions and Enforcement Proceedings under the Mississippi Securities Act' [1991-1992] 12 Mississippi College Law Review 179

6 Vinita Nair and Abhirup Ghosh, Corporate Bonds and Debentures (Taxmann, January 2021)

7 AV Rajwade, Debt securities and interest rates derivates (McGraw Hill Education, June 2007)

8 'Questions and Answers' (1990) 82 Law Library Journal 409

9 Companies Act 2013 (India) s 71(5)

10 35 Law Libr. J. 56 (1942) Recent Developments in Federal Taxation, Magill, Roswell

11 Kaan Sheung-Hung Terry, 'Out of the Depths: The Companies (Amendment) Act, 1987' (1988) 30 Malaya Law Review 349


The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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